UPDATE 1-US's Sebelius chides WellPoint unit over rate hike
* HHS secretary seeks details on reported Calif. rate hike
* Health insurer premium hike "extraordinary" -Sebelius
* Company reviewing HHS letter
WASHINGTON, Feb 8 (Reuters) - U.S. Health and Human Services Secretary Kathleen Sebelius questioned Anthem Blue Cross of California over reports that the health insurer will increase some premiums by as much as 39 percent, in a letter to the WellPoint Inc (WLP.N) subsidiary on Monday.
Sebelius called for Anthem to offer the public a detailed explanation of the rate hike as well as other information about how much of consumers' premium dollars go toward medical care rather than other expenditures.
"These extraordinary increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy," Sebelius wrote to Anthem Blue Cross President Leslie Margolin.
The letter is a further black mark against health insurers as the Obama administration ramps up its rhetoric in an attempt to boost Democratic efforts to overhaul the nation's healthcare system.
Health insurers have been a prime target for Democrats, now forced to revise their strategy for expanding access to insurance after losing their supermajority in a special Senate election last month.
While it was unclear what, if any, steps the U.S. health department could take, Sebelius said she was "very disturbed" and was "closely monitoring" the Anthem situation. State authorities in California -- the nation's most populated state -- are also investigating the reported rate hike.
WellPoint spokeswoman Kristin Binns said the company had received the letter and was reviewing it.
The Los Angeles Times reported last week that about 800,000 Anthem Blue Cross of California customers with individual health insurance plans would see their rates spike by as much as 39 percent March 1.
Anthem spokeswoman Peggy Hinz said the company has not made public any specific rates or details about how many customers have individual versus other types of plans. Overall, Anthem Blue Cross of California serves roughly 8.3 million people, Hinz said. (Reporting by Susan Heavey, editing by Gerald E. McCormick)
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While an easy target, its important to remember that CEO compensation is not the problem with healthcare. We could quibble about what is reasonable pay, but this does not drive rising healthcare costs – demographics, innovation and utilization are driving costs.
WellPoint’s CEO compensation (as high as it might be) is only partially based on premiums. Only appx. 1M is paid in cash which is tied to actual premium payments. The other 9M is paid in stock and options. While the stock has immediate tangible value, it is usually vested only over time and thus could lose value (see Nov. 2008). The options will only be worth money if the stock goes up. My point is that 90% of WP CEO compensation is based on investors not health insurance purchasers – if investors don’t buy/hold stock, payment is worthless.
If you take the 1M paid in cash and divide by the number of policy holders in CA, this is basically about one dollar per person. But WellPoint has 33M members nationally, so if you take this into account, average cost from premiums to pay CEO is about .03 per person/per year.
Based on a policy cost of $10,000-20,000/year, .03 cents is not going to get you much in the way of savings on overall health costs. Also health insurance is highly regulated and most insurers spend $.80-$.85 of every dollar on health related costs. I think WP is about .83-.85 and Medicare spends about $.98, but MC does not have the same marketing costs the same 50 state regulatory process to navigate and most importantly, doctors use private insurance payments to offset the low reimbursement rate of Medicare – most physicians would acknowledge this. Even assuming that one could raise the private ratio to $.95, we would only see a 13% decrease in premiums and this would only be in year 1. You would still have the ongoing problem of overall healthcare costs increasing at a rate greater than inflation.
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